The Williams’ Indicator, also known as the Williams’ %R (Williams’ Percent Range), is a leading indicator created by Larry Williams to measure market momentum. When applied to Forex, the Williams’ Indicator measures a currency pair’s trading momentum. The Williams’ Indicator is an oscillating technical indicator that can identify overbought and oversold conditions in a range-bound market.
Understand how the Williams’ Indicator is set up. The Williams’ Indicator measures currency pair momentum using a range from -100 to zero. Traders look for readings between -80 to -100, and -20 to zero. A reading of -80 to -100 indicates an oversold condition and gives traders a “buy” signal. A reading of -20 to zero indicates an overbought condition and gives traders a “sell” signal. When the indicator is falling from -50 to -20, it indicates the currency pair is in a downtrend. When the indicator is rising from -50 to -80, it indicates an uptrend.Step 2
Use the Williams’ Indicator trade entry rules for a trending market. When you get an oversold reading of -80 to -100, look to buy on a price dip before the currency pair trends upward. When you get an overbought reading of -20 to zero, look to sell the currency pair in a downtrend. In a range-bound market, you would buy when the indicator reads oversold and sell when the indicator reads overbought.Step 3
Consider the following trade example using the EUR/USD (Euro/US dollar) currency pair in a trending market. The indicator hovers around -50, showing the currency pair has very little price momentum. After awhile, the Williams’ Indicator jumps to -55 and starts moving up, indicating the start of an uptrend. You buy the EUR/USD and hold it until the Williams’ Indicator crosses the -80 mark, indicating the currency pair is starting to get overbought. You close the trade for a profit and wait for the Williams’ Indicator to point out another potential trade.Step 4
Recognize that the Williams’ Indicator can give you false signals. The indicator can point to an overbought condition when in reality the currency pair has dipped due to price consolidation before resuming the uptrend. Pair the Williams' Indicator with other technical indicators such as the Relative Strength Index, the Moving Average Convergence-Divergence (MACD) or trending lines to confirm the reading. Your experience trading with the Williams' Indicator will help you recognize and avoid false signals.
- Wait for the currency pair's price to change direction before opening your trade.
- Trading foreign currency pairs can be risky. Only trade with money you can afford to lose.
Based in St. Petersburg, Fla., Karen Rogers covers the financial markets for several online publications. She received a bachelor's degree in business administration from the University of South Florida.